Inflows fall to $1.9 billion in January, SBP data shows | Economist blames dollar cap for decline in remittances
\n Islamabad
\nRemittances sent home by overseas Pakistani workers fell to over a two-year-low as the dollar cap \u2014 imposed to stabilise the rupee against the dollar by the government earlier \u2014 prompted illegal transfers through hundi, hawala, and other channels.
\nData released by the State Bank of Pakistan (SBP) showed that the remittances fell to $1.9 billion in January 2023, compared to $2.1 billion in December and $2.18 billion in January 2022. In May 2020 remittance stood at $1.865 billion.
\nRemittances dropped 9.9% month-on-month and 13.1% year-on-year, the central bank data showed. With a cumulative inflow of $16 billion during the first seven months \u2014 July to January \u2014 of FY23, the remittances decreased by 11% compared to the same period last year.
\nThe dollar cap was removed by the end of January as per International Monetary Fund (IMF) conditions to pave the way for the release of the critical $1.1 billion loan tranche.
\nRemittances during January 2023 were mainly sourced from Saudi Arabia ($407.6 million), United Arab Emirates ($269.2 million), the United Kingdom ($330.4 million) and the United States of America ($213.9 million).
\n\u2018Perverse incentives\u2019
\nDr Khaqan Hassan Najeeb, a former adviser to the Ministry of Finance, said remittances were substantially low \u2014 both year-on-year and month-on-month in January.
\nNajeeb said the January data should be of concern as the country faces a severe dollar liquidity crisis.
\nThe lesson, the economist said, was that the open market premium compared to the interbank market incentivised the remitters to use unofficial channels. \u201cThe gap between the two markets was quite substantive.\u201d
\nCountries should adhere to a market-based exchange rate mechanism otherwise the system creates perverse incentives, he said, hoping that with the removal of the dollar cap and the closing of the gap between the markets, there might be an improvement in February.
\nNajeeb added that it is important to note that rising interest rates and high inflation globally have had some role to play in slowing remittances to Pakistan.
\n\u201cAs the interest rates are rising globally, people are opting to invest in the countries they are residing in instead of sending the money to Pakistan,\u201d the economist concluded.<\/p>\n","protected":false},"excerpt":{"rendered":"
Inflows fall to $1.9 billion in January, SBP data shows | Economist blames dollar cap for decline in remittances Islamabad Remittances sent home by overseas Pakistani workers fell to over a two-year-low as the dollar cap \u2014 imposed to stabilise the rupee against the dollar by the government earlier \u2014 prompted illegal transfers through hundi, […]<\/p>\n","protected":false},"author":2,"featured_media":313613,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-313633","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\n